Speaking at the SMSF Summit, Smart SMSF chief executive Aaron Dunn said one of the common traps with transfer balance account reporting (TBAR) is the timing around when pensions are started for SMSFs.
“We’ve had guidance for some time now that talks about the definition of a superannuation income stream going back to when pensions commence and cease in tax ruling 2013/5,” Mr Dunn explained.
Traditionally, Mr Dunn said that SMSF practitioners and their clients would decide to commence an income stream on 1 July, but as they didn’t have the information readily available on 1 July to prepare the documentation, the best practice was to document the decision.
However, with the new reporting, this decision is no longer as simple, he explained.
“If we’re only finishing these accounts in November, December, March or April, and we want to maximise that tax exemption, then that might be great for year one but we’ve now potentially opened up a great can of worms,” he said.
“We have responsibilities for our quarterly reporters anyway that have established income streams because they are due 28 October. This is not to say that you must get the accounts done by then, but in year one you have to make a decision in your business whether you will determine the value much quicker or decide that you can’t maximise the tax exemption and then complete the TBAR subsequent to the finalisation of the accounts because you’re taking a long-term view to the benefits of retirement phase, rather than just trying to extract every drop like we do for our clients in that very first year.”
Mr Dunn said while there is no right or wrong answer to this, it is critically important for firms to decide how they’re going to deal with this.
“At the moment, the ATO is very supportive of us making sure that we can align our processes to deal with our quarterly versus annual requirements. But at some point, they will flick the switch from education to enforcement and we don’t want to end up with a penalty in that process for failure to lodge,” he warned.
